In the Philippines, the "13th month pay" is a cherished tradition and a statutory right for most employees. As the Christmas season approaches, it is often the most anticipated financial windfall for the Filipino workforce. However, a significant portion of the modern labor force—those under Contract of Service (COS) or Job Order (JO) arrangements—frequently finds themselves asking: Are we entitled to it too?
To understand the legal standing of COS workers regarding this benefit, we must look at the intersection of Presidential Decree No. 851, labor laws, and civil service rules.
1. The Legal Basis: Presidential Decree No. 851
The 13th month pay was institutionalized by Presidential Decree No. 851 in 1975. Under this law, all employers are required to pay their rank-and-file employees a 13th month pay, regardless of the nature of their employment, provided they have worked for at least one (1) month during the calendar year.
The Rule of Thumb: To be entitled to the 13th month pay under PD 851, there must be an employer-employee relationship.
2. The Status of COS Workers: "No Employer-Employee Relationship"
The primary reason COS and JO workers are generally not entitled to the statutory 13th month pay lies in the nature of their contract.
In both the private and public sectors, a Contract of Service is defined by a specific legal distinction:
- No Employer-Employee Relationship: The contract explicitly states that the worker is not an employee of the agency or company.
- Service-Based: The worker is hired to perform a specific job or project for a specific period.
- Government Context: For government COS/JO workers, their service is not considered "government service" and is not covered by Civil Service laws or the Government Service Insurance System (GSIS).
Because the law (PD 851) specifically mandates the benefit for employees, the absence of a formal employer-employee relationship means COS workers fall outside the mandatory coverage.
3. Public Sector vs. Private Sector
In the Public Sector (Government)
The Commission on Audit (COA) and the Department of Budget and Management (DBM) issue joint circulars governing COS and JO workers. Historically, these workers do not receive 13th month pay. Instead, the government often grants a "Gratuity Pay"—a one-time year-end incentive—contingent upon the issuance of an Executive Order by the President and the availability of agency funds.
In the Private Sector
In the private sector, COS workers are often treated as independent contractors or consultants. Unless their contract specifically stipulates a "13th month bonus," the company is not legally obligated to provide one. However, if a COS worker can prove in court (using the "Four-Fold Test") that they are actually a regular employee based on the company's control over their work, they may claim the benefit retroactively.
4. What are COS Workers Entitled To?
While the 13th month pay is not a right for COS workers, they are entitled to the terms specifically written in their contract:
- Negotiated Rates: Often, COS workers negotiate a higher daily or monthly rate to compensate for the lack of benefits like SSS/GSIS, PhilHealth, and 13th month pay.
- Premium Pay: In some government settings, COS workers receive an additional 20% premium on their wages in lieu of benefits, though this varies by agency.
5. Summary Table: Employee vs. COS Worker
| Feature | Regular/Rank-and-File Employee | Contract of Service (COS) |
|---|---|---|
| Legal Basis | Labor Code / PD 851 | Civil Code / Contract Law |
| 13th Month Pay | Mandatory by law | Not Mandatory (Contract-dependent) |
| Taxation | Withholding Tax on Compensation | Expanded Withholding Tax (Professional/Stripped) |
| Relationship | Employer-Employee Relationship exists | No Employer-Employee Relationship |
6. Conclusion
Under the current legal framework in the Philippines, Contract of Service (COS) workers are not legally entitled to the mandatory 13th month pay. Their compensation is strictly governed by the "four corners" of their contract.
For COS workers to receive a year-end bonus, it must either be voluntarily granted by the employer, stipulated in the contract, or—in the case of the public sector—authorized by a specific Presidential directive for "Gratuity Pay."
Would you like me to draft a sample demand letter or a contract clause that includes a performance bonus for a COS arrangement?